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Analysts: Simon unlikely to buy Capital Shopping

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Simon Property Group Inc. is unlikely to buy Capital Shopping Centres Group Plc because it will take too long for rents to rise enough to justify a price its U.K. counterpart would accept, according to Barclays Capital real estate analysts.

“The economics of an acquisition appear difficult to justify at levels that could get CSCG shareholders interested,” analysts Ross Smotrich and Aaron Guy said in a note to clients Tuesday.

Indianapolis-based Simon, the largest U.S. mall owner, made a conditional offer of 425 a pence share for Capital Shopping on Dec. 15, valuing the U.K. company at 2.9 billion pounds, or $4.6 billion. Simon attached several conditions to its proposal, including that Capital Shopping drop a planned cash-and-shares purchase of the Trafford Shopping Centre in Manchester that would give seller Peel Group a 25 percent stake in Capital Shopping.

“If the Trafford acquisition is completed, SPG would find itself at a material disadvantage to acquire CSCG in the medium term,” said Smotrich, who works in New York for the investment banking unit of Barclays Plc, and Guy, who is based in London. “Any future plan would become materially more expensive and complicated, leaving Simon with few options.”

Simon wants to acquire a portfolio of malls in the U.K. that couldn’t be replicated in a market where planning consents for new shopping centers are hard to obtain, the analysts said. Buying Capital Shopping also would give Simon’s tenants an opportunity to open stores outside the U.S., they said.

Another attraction of Capital Shopping for Simon, which already has a 5.1 percent stake in the company, is the potential for rent increases at its stores. Capital Shopping’s rents are 20 percent below the market average, according to the Barclays report.

“It will ultimately be challenging for SPG to underwrite a more aggressive firm bid given that much of the value will take years to realize,” the analysts said.

Simon’s tactics are “eerily similar” to its unsuccessful efforts to buy General Growth Properties Inc., Smotrich and Guy said. They include offering financing at better terms than a third party and making indicative offers through press releases.

Simon has until Jan. 12 to make a firm bid for Capital Shopping or abandon its pursuit, U.K. regulators said Dec. 17.

Capital Shopping, which delayed a shareholder vote on the Peel transaction to Jan. 26 from Monday, has refused to allow Simon access to its books, saying the offer “very substantially undervalues the company and its prospects.”

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  • Best use of cash stockpile
    How about spending a small portion of your cash on buying the Circle Center Mall next to your headquarters ?

    That would bail out the insolvent Capital Improvement Board (CIB) which is burdened with construction debt that has a ever extended balloon payment they will never be able to pay.

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  1. How much you wanna bet, that 70% of the jobs created there (after construction) are minimum wage? And Harvey is correct, the vast majority of residents in this project will drive to their jobs, and to think otherwise, is like Harvey says, a pipe dream. Someone working at a restaurant or retail store will not be able to afford living there. What ever happened to people who wanted to build buildings, paying for it themselves? Not a fan of these tax deals.

  2. Uh, no GeorgeP. The project is supposed to bring on 1,000 jobs and those people along with the people that will be living in the new residential will be driving to their jobs. The walkable stuff is a pipe dream. Besides, walkable is defined as having all daily necessities within 1/2 mile. That's not the case here. Never will be.

  3. Brad is on to something there. The merger of the Formula E and IndyCar Series would give IndyCar access to International markets and Formula E access the Indianapolis 500, not to mention some other events in the USA. Maybe after 2016 but before the new Dallara is rolled out for 2018. This give IndyCar two more seasons to run the DW12 and Formula E to get charged up, pun intended. Then shock the racing world, pun intended, but making the 101st Indianapolis 500 a stellar, groundbreaking event: The first all-electric Indy 500, and use that platform to promote the future of the sport.

  4. No, HarveyF, the exact opposite. Greater density and closeness to retail and everyday necessities reduces traffic. When one has to drive miles for necessities, all those cars are on the roads for many miles. When reasonable density is built, low rise in this case, in the middle of a thriving retail area, one has to drive far less, actually reducing the number of cars on the road.

  5. The Indy Star announced today the appointment of a new Beverage Reporter! So instead of insightful reports on Indy pro sports and Indiana college teams, you now get to read stories about the 432nd new brewery open or some obscure Hoosier winery winning a county fair blue ribbon. Yep, that's the coverage we Star readers crave. Not.

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